Pay Yourself First

Category: Finance, Financial Planning.

Savings. Start now stashing 10% of your income in an" Emergency" savings.

Pay yourself first. Don t use it for anything but real emergencies. Christmas, taxes, insurance, etc. ). Keep a" For Sure" savings account for yearly expenses you know are coming and you can estimate( e. g. Also have a" Buy Stuff" account. Borrowing. If you do, you ll be able to avoid many financial disasters which will face you, and you can avoid borrowing money from high- rate lenders.

Don t borrow money unless you are willing and able to pay it back. Experts recommend you don t borrow for wants, or for things, only for needs that increase in value. Failure to pay debts- on time- causes severe financial, and family problems, emotional. Many lenders will loan you money you can t afford to pay back, especially high- rate lenders. Don t co- sign on a loan unless you are willing and able to pay it back. Co- signing. Often, co- signers end up paying off loans they are unprepared for, and financial hardships follow.

Many lenders do not notify the co- signor before reporting delinquencies or repossessions to the credit bureau. Numerous co- signors now have negative credit ratings because a primary borrower paid late. Compare. Find out who is offering the best deal at that time- look for the loan with the lowest rate( APR) . Before you decide who to borrow from, compare! APR.

It is the standard rate, so we may compare the cost of borrowing. The Annual Percentage Rate( APR) . It is the cost of credit expressed as a yearly rate. Some have been illegally stating other rates such as weekly or monthly rates. When you borrow, always beat 13% APR( consider" 13" to be unlucky when it comes to borrowing) . Compare APR to APR. Beware though, because beating 13% does not always mean you are getting a good deal.

If you pay your bills on time, and you aren t over- extended, you can nearly always find loans or financing arrangements at rates lower than 13% . For instance: the difference in total interest paid on an 11% versus an 8% 30- year, $100, 000 mortgage loan is$ 64, 283( assuming all payments are made as agreed) . A consolidation loan can result in great savings to borrowers if the new interest rate is significantly lower, and if you don t run- up debt similar to what was just consolidated. Consolidation Loans. But beware, because consolidation loans usually result in substantially more money out of your pocket into the lenders . They increase the total debt. For instance, mortgage loans usually involve closing costs.

Many refinances involve reducing the monthly payment, but increasing the length of payback, which substantially increases the total interest paid. Also, remember to keep all of your payments current until the old debt is paid off. Borrowers, who refinance unsecured debt( e. g. credit cards) into a home mortgage, also increase their risk of losing their homes. Too many people have damaged credit ratings, and are in bad financial condition because they counted on money which didn t come when they expected it. Don t spend money before you get it. Expect delays when applying for loans, especially consolidation loans. Desperation.

The more desperate you are, the less likely you are to get a good loan. Don t get desperate for money. Auto insurance. If you fail to keep your insurance up- to- date, you could end up making loan payments for years after your car has been totaled. Keep your auto insurance current. Establish good credit. Inexpensive ways to establish good credit: (1) Obtain a good credit card.

To avoid bad credit, don t borrow too much, and do pay your bills on time. When you charge things, pay off the balance each month- on time- and pay no interest. (2) Establish a revolving line of credit( an empty loan) as an overdraft protection against bounced checks, and don t use it as a loan. (3) Get a loan to buy a car, or etc, or furniture. ) and pay it off within a few months. To avoid late fees( which multiply the cost of borrowing) , pay early, or at least on time. Late fees. Repossessions. Extra principal� less interest. To avoid repossessions and associated fees, pay early or on time, and keep your insurance current.

To pay less interest on loans, pay more than the minimum required payment. Before doing this, make sure your, however lender accepts extra principal payments, and find out what particular procedure you need to follow to ensure your extra principal is properly applied. Even small amounts of extra principal, can significantly reduce the total amount of interest you would otherwise pay over the life of the loan. Bi- weekly payments. For instance, if you make � of your required monthly payment every 14 days( a bi- weekly period) , you pay the equivalent of 1052 payments in an average year. If you get paid weekly, or every other week, paying bi- weekly is a very convenient( almost painless) way to reduce your loan term and interest.

If you don t get paid bi- weekly, or if your lender doesn t like biweekly payments, you can pay the equivalent amount in monthly installments. Contrary to popular belief, the frequency of paying � payments bi- weekly doesn t accomplish much, the real advantage is paying the extra principal( 105 payments, each year, or more) which reduces the term and the interest paid. If you pay 1/ 12 of the sum of 105 payments each month, you will match the bi- weekly advantage( minor rounding differences) . If you are considering signing up for a bi- weekly program, pay close attention to the cost. Also consider the credibility of any company handling your money, some have diverted payments into their own pockets, leaving borrowers to make payments twice( once to a corrupt servicer, and a second time directly to the lender) . Some servicers have large set- up fees and transaction fees.

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